Americans Are Retiring Earlier Because of Pandemic
Dee Dee Patten, 57, had no plans to retire early. But when the coronavirus-induced lockdown took hold in 2020 and business dried up in the mechanical repair shop that she and her husband, Dana, owned in Platteville, Colorado, they decided to shut it down. .
Mildred Vega, 56, had even less choice in the matter. Shortly after losing her job due to a restructuring at a Pfizer office in Vega Baja, PR, the pandemic ruled out other options.
Ms Vega and the Pattens are three of the millions of Americans who have decided to retire since the start of the pandemic, as part of an increase in early exits from the workforce. The trend has broad implications for the job market and is a sign of how the pandemic has transformed the economic landscape.
For the lucky few, the decision was made possible by 401 (k) accounts exceeding record values for stocks. This wealth, coupled with an increase in home values, provided some with the financial security needed to stop working long before Social Security and private pensions came into effect.
But most early retirements occur among low-income workers who have been displaced by the pandemic and see little path to the job market, according to Teresa Ghilarducci, professor of economics and policy analysis at the New School for Social Research in New York City.
“They can claim retirement, but basically they are unemployed and in a precarious state,” Ghilarducci said. Economic downturns typically prompt more people to leave the workforce, but the wave of departures has been faster this time around than in the 2008-09 recession, she said.
After analyzing data from the Bureau of Labor Statistics and the University of Michigan Health and Retirement Study, Ghilarducci found that among people with incomes at or below the national median, 55% recently, retirements were involuntary.
In contrast, among the richest 10 percent of wage earners, only 10 percent of exits were involuntary. “This is the story of two retirements,” Ms. Ghilarducci said.
For the Pattens, most of their business income came from inspecting school buses in northern Colorado. When schools switched to distance learning in March 2020, the company stopped receiving its regular traffic.
“On average, we had 10 to 20 buses a day that we bring in and inspections and then put them on the road for the kids,” Ms. Patten said. “When spring break hit, we didn’t see another bus.”
When schools reopened, they struggled to find a mechanic. Last July they managed to hire one, but he left almost immediately. And the work was too physically demanding for the couple to continue on their own, Ms Patten said.
They sold their shop and equipment, as well as their house, putting some of the money in a retirement account. When a separate depository account certificate expires, they plan to buy a home in Denver. Since Mr Patten is 62, he has applied for Social Security, but his monthly benefits will be much lower than he would have received had he waited a few more years.
The move to early retirement reverses a long-standing trend. The share of Americans over 65 who are still in the labor force is 50% higher than it was 20 years ago. Some work longer because they must and cannot afford to retire, while others are living longer and healthier lives and want to keep working.
Early retirements not only reflect the economic impact of the pandemic, but can also dampen the recovery, as retired workers tend to spend more wisely. They will also rely on social security earlier rather than contributing to the program and strengthening its long-term sustainability.
“The older generations tend to earn more and increase their spending,” said Gregory Daco, chief US economist at Oxford Economics. With this group out of the labor force in greater numbers, “it’s more negative than positive for the economy.”
In the 15 months since the start of the pandemic, about 2.5 million Americans have retired, Daco said. This is roughly double the number of people who retired in 2019, meaning there are essentially 1.2 million people under the age of 55 in the workforce than one would expect. other.
The sharp increase in retirements – as evidenced by the way people describe their employment status in monthly government surveys – has also declined unevenly among groups of different educational and ethnic backgrounds.
A November study by the Pew Research Center found that the proportion of Americans born between 1946 and 1964 with just a high school diploma who are retired increased by two percentage points from the previous February, that is, double the proportion among those with a university degree.
In addition, the share of the Hispanic population in this age group that is retired jumped four percentage points, compared with a one point increase for white and black baby boomers.
Hispanic workers, especially Hispanic women, have been disproportionately affected by the slowdown in leisure and hospitality employment, said Richard Fry, senior researcher at the Pew Research Center.
As for older workers as a whole, “anyone can guess if they will come back,” Fry said.
The proportion of adults aged 16 and over who are employed or looking for work, now 61.6%, has been declining for years, from 66% in 2009 to 63% at the start of 2020. But it has plunged when the pandemic struck and was slow. get over.
The aging of the population, as well as the tendency of less educated workers to leave the workforce amid stagnant wages and fewer opportunities in higher paying fields like manufacturing, have also hampered participation in the market. work.
And evidence is mounting that more and more older workers are considering exits.
A recent Federal Reserve Bank of New York household survey found that the average probability of working over age 67 was 32.9%, the lowest level since researchers began asking the question. question in 2014. In November, that figure was 34.9%.
The premature retirement of millions of workers feeling a lack of opportunity can seem confusing as many companies scramble to find employees – a conundrum that has forced economists to rethink how the labor market works.
Part of the answer seems to be a skills mismatch between available workers and jobs. In addition, salaries in many open positions have remained too low to attract people from the sidelines.
If newly retired workers do not return, the job market could become much tighter, increasing the risk that the Federal Reserve will need to raise interest rates to curb inflation, said Carl Tannenbaum, chief economist at Northern Trust in Chicago.
“We already have the challenge of keeping workforce growth at decent levels,” he said. “Immigration is falling, the birth rate is falling and it is much more difficult for the economy to maintain its productive potential if all of these people stay in retirement.”
Ms Vega said she could take a part-time job once the pandemic subsides enough that she can return comfortably to an office, but she plans to spend the rest of her time with her parents and children.
She was eligible for a Pfizer pension available to retirees 55 or older. Even though early retirement was not in her plans, she is trying to make the most of her situation.
“I loved my job, but I don’t miss the stress level,” she said. “Constant stress affects my mental and physical health. The pandemic made me realize how long my job took me to spend with my family. “
The Pattens feel flustered by the sudden change after 22 years of uninterrupted work, but they too are looking up.
“We both know that at our age it was probably the best thing for us,” Ms. Patten said. “We’re going to get used to all this free time. Our plan is to volunteer, travel and find a new place to live after 30 years on the old farm.
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